RBI directs banks, NBFCs, digital lending platforms to disclose full information

To make digital lending more transparent, the Reserve Bank of India has directed banks, Non Banking Financial Corporations' (NBFCs) and digital lending platforms to disclose full information up front on their websites to customers. The direction comes against the backdrop of several complaints relating to exorbitant interest rates and harsh recovery measures, among others, against lending platforms.

The RBI said that immediately after sanction of loan, a letter must be issued to the borrower on the letterhead of the bank/ NBFC concerned. It also said that a copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/ disbursement of loans. It also asked the banks and NBFCs to create awareness about the grievance redressal mechanism.

RBI in the notification has asked the banks and NBFCs engaged in digital lending platforms must follow the following instructions:

a) Names of digital lending platforms engaged as agents shall be disclosed on the website of banks/ NBFCs.

b) Digital lending platforms engaged as agents shall be directed to disclose upfront to the customer, the name of the bank/ NBFC on whose behalf they are interacting with him.

c) Immediately after sanction but before the execution of the loan agreement, the sanction letter shall be issued to the borrower on the letterhead of the bank/ NBFC concerned.

d) A copy of the loan agreement along with a copy each of all enclosures quoted in the loan agreement shall be furnished to all borrowers at the time of sanction/ disbursement of loans.

e) Effective oversight and monitoring shall be ensured over the digital lending platforms engaged by the banks/ NBFCs.

f) Adequate efforts shall be made towards the creation of awareness about the grievance redressal mechanism.

Stating that digital delivery in credit intermediation is a welcome development, the RBI said that concerns emanate from non-transparency of transactions and violation of the guidelines on outsourcing of financial services and Fair Practices Code of banks and NBFCs.

Besides, it added that the banks and NBFCs must also meticulously follow regulatory instructions on outsourcing of financial services and IT services. The RBI also said any violation by banks and NBFCs will be viewed seriously.